In response to the President of United States Donald Trump's promotion of dollar-backed stablecoins, the European Central Bank (ECB) is accelerating efforts to develop a digital euro.
The board member of European Central Bank Piero Cipollone highlighted concerns that Trump's executive order could lead to disintermediation of banks, urging the need for a competitive digital currency to retain customers.
The ECB is presently evaluating the digital euro's functioning, which would act as an online wallet accessible even to non-bank users, although a final decision awaits legislative approval from European politicians.
The introduction of a digital euro could significantly reshape European financial markets. Banks could face reduced profitability due to declining fees from payment services and increased refinancing costs.
While it may boost financial stability by providing a public alternative to private digital currencies, it also poses risks such as potential bank runs if consumers prefer holding digital euros over traditional deposits.
However, the implementation of a digital euro faces several challenges like the technical integration, cybersecurity risks, adoption and trust, regulatory framework etc.
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